I. Field of the Invention
The present invention is related to credit card products and to methods for providing such products. More particularly, the invention relates to methods that establish and assign a credit limit according to credit and risk-splitting information.
II. Background and Material Information
Credit card products have become so universally well known and ubiquitous that they have fundamentally changed the manner in which financial transactions and dealings are viewed and conducted in society today. Credit card products are most commonly represented by plastic card-like members that are offered and provided to customers through credit card issuers (such as banks and other financial institutions). With a credit card, an authorized customer or cardholder is capable of purchasing services and/or merchandise without an immediate, direct exchange of cash. With each purchase, the cardholder incurs debt which the cardholder may thereafter pay upon receipt of a monthly or otherwise periodic statement. In most cases, the cardholder will have the option to either fully pay the outstanding balance or, as a matter of necessity or choice, defer at least a portion or the balance for later payment with accompanying interest or finance charges for the period during which payment of the outstanding debt is deferred.
The spending power of a credit card (i.e., the total amount of funds available to the cardholder at any particular time for making purchases) is typically limited to a particular amount predetermined by the issuer of the card. This amount is commonly referred to as the “credit limit” of the credit card. The size of the issuer-imposed credit limit is generally based on “credit information,” including a number of non-exclusive factors, the most important of which are often the applicant's earning capacity and the applicant's credit history. Credit information is normally collected from one or more credit bureaus. In order to augment credit bureau information and offer the applicant a higher or lower credit limit, credit card issuers generally pose a variety of additional questions that give more detail about the applicant's financial status. These “risk-splitting questions” provide additional information about the applicant that typically is not reported by a credit bureau or provided by general credit information. Such information may include whether the applicant owns a home, a car or other property and whether the applicant purchases insurance on these properties. Information provided by answers to such risk-splitting questions enables the issuer to offer to the applicant a higher credit limit, while reducing the added risk of such an offer above the credit limit based entirely upon credit information.
Typically, credit card issuers include and pose risk-splitting questions on an application for the credit card. The problem with this technique is that including such questions on the application encumbers the application process, which has been proven to reduce the number of applicants. Direct mail campaigns have found that eliminating risk-splitting questions from application forms increased the response rate by more than 50%. However, eliminating the questions decreased the issuer's confidence in the initial risk assessment on applicant accounts. The result of eliminating the risk-splitting questions is that low risk applicants get lower credit limits and higher risk applicants get higher credit limits than would be ideal for the applicant and the credit card issuer. Therefore, the risk-splitting questions are necessary to allow optimal credit limit assignment to each applicant and increase the value of the credit card product to the applicant and the issuer.
In addition, another problem with static risk-splitting questions on the application form is that the responses to the risk-splitting questions may change from the time the application form is completed by the applicant and the time when the credit card is issued and activated. Similarly, the issuer may want to ask different permutations of questions to the applicant based on the applicant's answers to certain risk-splitting questions. The static risk-splitting questions on the application form cannot be tailored to the answers of each applicant.
In view of the foregoing, there is presently a need for an improved system and method for providing credit card products. For example, a need exists for a credit card product that minimizes the risk to credit card issuers while allowing them to offer credit limits to applicants (having, for example, a poor or bad credit history) that adequately represent their status at the point of activation. There is also a need for an improved system and method for offering credit cards that provides an optimized credit limit for each applicant.